Market Signals for the US stock market S and P 500 Index and Indian Stock Market Nifty Index for the Week beginning January 29

 

Asset Class	Weekly Level / Change	Implication for S & P 500	Implication for Nifty*
S & P 500	4891, 1.06%	Bullish	Bullish
Nifty	21353, -1.02%	Neutral **	Bearish
China Shanghai Index	2910, 2.75%	Bullish	Bullish
Gold	2037, 0.38%	Neutral	Neutral
WTIC Crude	78.23, 6.57%	Bullish	Bullish
Copper	3.85, 1.77%	Bullish	Bullish
CRB Index	274, 3.09%	Bullish	Bullish
Baltic Dry Index	1518, 1.00%	Bullish	Bullish
Euro	1.0854, -0.39%	Neutral	Neutral
Dollar/Yen	148.15, 0.01%	Neutral	Neutral
Dow Transports	15901, 1.98%	Bullish	Bullish
Corporate Bonds (ETF)	109.09, 0.09%	Neutral	Neutral
High Yield Bonds (ETF)	95.02, 0.68%	Bullish	Bullish
US 10-year Bond Yield	4.14%, 0.21%	Neutral	Neutral
NYSE Summation Index	626, -3%	Bearish	Neutral
US Vix	13.26, -0.30%	Neutral	Neutral
Skew	151	Bearish	Bearish
CNN Fear & Greed Index	Extreme Greed	Bearish	Bearish
20 DMA, S & P 500	4788, Above	Bullish	Neutral
50 DMA, S & P 500	4687, Above	Bullish	Neutral
200 DMA, S & P 500	4422, Above	Bullish	Neutral
20 DMA, Nifty	21643, Below	Neutral	Bearish
50 DMA, Nifty	21006, Above	Neutral	Bullish
200 DMA, Nifty	19544, Above	Neutral	Bullish
S & P 500 P/E	26.55	Bearish	Neutral
Nifty P/E	22.27	Neutral	Bearish
India Vix	13.87, 1.09%	Neutral	Bearish
Dollar/Rupee	83.12, 0.05%	Neutral	Neutral
Overall	S & P 500	Nifty
Bullish Indications	11	10
Bearish Indications	4	6
Outlook	Bullish	Bullish
Observation	The S&P 500 rose and the Nifty fell last week. Indicators are bullish for the week. Markets are topping. Watch those stops.
On the Horizon	Eurozone - German GDP, UK – BOE rate decision, US – FOMC rate decision, Employment data, India - Union Budget
*Nifty	India’s Benchmark Stock Market Index
Raw Data	Courtesy Stock charts, investing.com, multpl.com, NSE
**Neutral	Changes less than 0.5% are considered neutral

 

The S&P 500 rose and the Nifty fell last week. Indicators are bullish for the week. Markets are topping. We are transitioning from an inflationary regime to a deflationary collapse. The Nifty has started to correct and will likely underperform. We are way overbought short-term and will continue pulling back here sharply to as low as the 50 DMA.

The past week saw US equity markets rise. Most emerging markets rose, as interest rates were little changed. Transports rose. The Baltic dry index rebounded. The dollar was unchanged. Commodities rose significantly. Valuations continue to be quite expensive, market breadth fell, and the sentiment is now exuberant. Fear was unchanged this week, as a possible reality check from a FED Pivot looms.

After this rally, the recent currency crisis should resume and push risky assets to new lows across the board. Deflation is in the air despite the recent inflationary spike and bonds are telegraphing just that. Feels like a 2008-style recession trade has begun, with a potential for a decline in risk assets across the board. The current market is tracking closely the 2000 moves down in the S&P 500, implying a panic low right ahead in the upcoming months (My views do not matter, kindly pay attention to the levels). A dollar rebound from major support is a likely catalyst.

The S&P 500 is encountering resistance near its recent highs. We have bounced from recent lows without capitulation. This suggests the lows may not be in and the regime has changed from buying the dip to selling the rip. We may get a final flush down soon. Risky assets should continue breaking to the downside across the board, as downward earnings revisions are underway.

The Fed has aggressively tightened into a recession. Deflationary busts often begin after major inflationary scares. The market has rebounded after correcting significantly, and more is left on the downside. The Dollar, commodities, and bond yields are continuing to flash major warning signs.

The epic correction signal occurred with retail, hedge funds, and speculators all in, in January 2022, suggesting a major top is in. The moment of reckoning is here. With extremely high valuations, a crash is on the menu. Low volatility suggests complacency and downside ahead.

Global yield curves have inverted significantly reflecting a major upcoming recession. The recent steepening of the yield curve, within an inverted context, with rates falling, is a precursor to the next recession, and the riskiest assets will underperform going forward under such conditions. 

The critical levels to watch for the week are 4905 (up) and 4890 (down) on the S&P 500 and 21450 (up) and 21250 (down) on the Nifty. A significant breach of the above levels could trigger the next big move in the above markets.  High beta / P/E will get torched yet again and will likely prove to be a sell on every rise. Gold is increasingly looking like the asset class to own over the next decade. (Gold exploded almost 8 times higher over the decade following the dot-com bust in 2000, just imagine what would happen when this AI bubble bursts? following the recent crypto bubble burst) You can check out last week’s report for a comparison. Love your thoughts and feedback.